After years of hoping to find the “perfect” budget, the absence of money is still a constant struggle. A simple Google search will provide several guidelines to follow on building a budget, but these seem to always fall short, omitting major expenses or underestimating categories such as entertainment.
A few years ago my search for the “perfect” budget finally came to an end. With a strong background in Microsoft Excel, the decision was made (out of necessity) to write down all monthly expenses in a Microsoft Excel format. The result: the “(almost) perfect” budget! No budget is really perfect. They need flexibility to mold with the uncertainties life brings. However, if you follow the tips outlined below, you can come pretty dang close.
Here it is: How to Make a Budget!
Photo by: @adiomanovic
Step One: How Much Do You Have?
First, you need to figure out how much money you have. Sign up for online banking (only if its free), view your balances, count your cash, gather miscellaneous coins from under the couch cushions, car seats, and/or in the junk drawer. We need every liquid dollar you have counted and deposited into your checking account. We cannot proceed unless we know what we’re working with.
Step Two: How Much Do You Owe?
Now, go through the exact same scavenger hunt, but this time find every bill you have. All of them. Print out or write on a piece of paper every monthly recurring or one-time payment that’s owed all the way down to your Netflix subscription. You need to know the outstanding balance, day of the month it’s due, minimum monthly payment, and interest rate. Check my list below to make sure you aren’t missing one.
- Credit Cards (all of them)
- Store Charge Cards (these count too)
- Mortgage/Rent Payment
- Cable Bill (Comcast, Dish, Direct TV, Time Warner, Cox, etc.)
- Media Subscriptions (Netflix, Hulu, NBA All-Access Pass, etc.)
- Utility Bills (Water, Gas, Electric, Trash, Sewer, etc.)
- Car Payment(s)
- Insurance Bill (Car, Health, Life, ID Theft, Homeowners/Renters, etc.)
- Phone Bill (House and Cell)
- Gym Memberships
- Magazine Subscriptions
- Wine Club Membership
- Memberships (Union Dues, NRA, Other Work Subscriptions, etc.)
- Car Registration (Careful, this one’s annual but just as important)
- Home Security Systems
- Time Share Dues and Taxes
- Home Owner’s Association Dues
- Tuition Payments
- Back Taxes Owed
- Rental Property Expense
A lot, I know, but you are doing GREAT! Next, estimate payments made in any given month. If you use your credit cards a lot, perhaps this is the ideal time to look at what you’ve spent money on over the past month to help you out. Be thorough. Compile an average. If you have twelve months’ worth of data, add everything up in a given category and divide by twelve.
- Entertainment (Movies, Live Events, etc.)
- Dinners Out
- Home Repairs
- Car Repairs
Now, let’s put all of this information in one place. Some will prefer pen and paper, but being as how we are in the 21st century, let’s just open a Microsoft Excel document. Sheet1 is where you’ll put your balance sheet. First create a list of assets in column A. Things like your house, your car, that signed baseball your grandpa gave you as a kid, etc. Then leave a few spaces and continue listing all your debts. This is the first list we created above: your mortgage, credit cards, tuition payments, car payments, etc.
In column D, adjacent the assets listed in column A, list the true market value. If you don’t know, then run a quick google search. This number should be the “sell today” number. Sure someone is willing to pay $14,500 for your car because that’s what Kelley Blue Book says is the fair private party value, but you should put down the CarMax or trade-in number. Meaning, if you had to sell this today, what would it sell for. Next to each of your liabilities in column A, put the interest rates, minimum payments, and outstanding balances of each item (how much you owe) in columns B, C, and D, respectively.
You should now have a complete balance sheet. Tally up your assets and tally up your liabilities. Subtract your liabilities from your assets. This is your net worth. If you sold everything you own and paid off everything you owe, this number represents how much cash you’d have left. It’s widely accepted that bigger is better in this scenario. Is it negative? Mine was. Mine was VERY negative. That’s OK. This just means you need to follow this blog and keep reading. Even if it’s positive, the goal of this blog is to grow this number.
Next on The Smart Money Maker!
Stay tuned. Next, it’s time to create your weekly budget. Click Here to find the second of two posts in this “How to Make a Budget” miniseries. Happy budgeting!